Rupee fall, import duty to hit domestic jewellers hard

Jewellers charge about 10 per cent as making charges. Considering three per cent value-added tax and other local levies, consumers in India would have to pay about 30 per cent extra over prevailing global gold prices.

“The business of local jewellers would be affected by these additional levies and depreciation in the Indian rupee,” said Shreyas Doshi, chairman, Shrenuj & Co, a Mumbai-based jewellery manufacturer and exporter.

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Image: An employee holds a gold key during a photo opportunity at a jewellery shop.Photographs: Truth Leem/Reuters

Rupee fall, import duty to hit domestic jewellers hard

For jewellery exporters, raw materials such as gold and diamonds are available in dollar terms.

Also, the duty component of jewellery exports is claimed for refund under the Duty Entitlement Passbook Scheme.

Therefore, the duty paid on raw materials for exportable jewellery is refundable. Since the margin component of about five per cent isn’t hedged, jewellery exporters’ incomes from foreign sales vary, depending on the variation in the rupee.

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Image: customer tries on a gold necklace at a gold shop in Hanoi.Photographs: Kham/Reuters

Depreciation in the rupee, however, kept the sentiment high, with jewellery shipments recording a jump of 3.18 per cent to Rs 2.12 lakh crore during 2012-13, compared with Rs 2.06 lakh crore in the previous year.

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Image: Five-tael (6.65 ounces or 190 grams) gold bars are seen at a jewellery store in Hong Kong.Photographs: Bobby Yip/Reuters

Rupee fall, import duty to hit domestic jewellers hard

The government argues the rise in the import duty on gold would encourage individual customers to invest in other asset classes, reducing gold imports in India. This would help reduce the country’s current account deficit.

Jewellers believe their business would be hit by the two-way impact on gold prices, which would make gold costlier in India than in other countries.

This would, in turn, encourage gold smuggling and create a parallel economy.